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April 25, 2013

2013 SMA Managers of the Year Nominees: Fixed Income

The nominees in this category—from GW&K and Tom Johnson Investment Management—have found long-term, consistent success in intermediate and enhanced fixed-income strategies

This is the ninth year that Investment Advisor, AdvisorOne and Prima Capital, now Envestnet | Prima, will have researched, nominated and chosen the best separately managed account managers in multiple categories.

Below, we name those strategies, in alphabetical order, chosen as finalists by the 2013 SMA Managers of the Year Awards Committee in the fixed-income category. This year, the winners of the SMA Managers of the Year honors in this category and the others will be celebrated at a live event in Chicago, in online interviews posted to AdvisorOne and in the cover story of the June issue of Investment Advisor.

This is the second appearance for Gannett Welsh and Kotler (GW&K) Investment Management among this year’s nominees for the SMA Managers of the Year, this time in the fixed-income category. The Boston-based firm’s Enhanced Core Bond strategy combines top-down analysis to determine the overall sector allocation of the portfolio, and bottom-up fundamental research to select individual securities.

“The team [which includes Harold Kotler, left, the firm's CEO and Chief Investment Officer] begins its top-down approach with analysis of present economic conditions, focusing on current and secular inflation trends,” according to Envestnet | Prima’s research analysts in its presentation to the Awards Committee for the 2013 SMA Managers of the Year. “This provides the foundation for the team's view of the business cycle and its longer-term outlook for interest rates. GW&K does not attempt to forecast short-term interest rates; instead, this macro assessment drives the allocation to both investment-grade corporate issues as well as high yield corporate bonds.”

The report on GW&K says that within this framework, the sector allocation, maturity and duration benchmarks for the portfolio are determined. GW&K then proceeds with a bottom-up analysis to select corporate, U.S. agencies and mortgage-backed securities. “The process is research-driven and the team conducts its own research, rather than relying on Street research,” note Envestnet | Prima’s analysts.

The team selects corporate bonds based on improving credit fundamentals, ability to repay and relative value and selects MBS and agencies that offer attractive yields to predicted average lives.

Oklahoma City-based Tom Johnson Investment Management is giving GW&K a run for its (investors’) money. Its Intermediate Fixed Income strategy has style flexibility that allows the portfolio to adapt in an effort to add value over a full market cycle.

“The investment process blends strategic macroeconomic analysis, tactical analysis and fundamental credit analysis in an effort to identify issuers with acceptable credit risk and favorable yields within attractive sectors of the market,” Envestnet | Prima’s analysts wrote in presenting the strategy as a finalist in the fixed-income category. “Robust fundamental credit analysis is conducted on all potential issuers and is supplemented with scenario analysis, credit default swap spread analysis, trend analysis, leveraged buyout scorecards and fixed-income scorecards to determine the potential economic and fiscal impacts on the portfolio.”

The analysts add that TJIM seeks to own companies that have more cash than debt, or companies that can pay off existing debt with highly sustainable free cash flow within a short period of time. It sounds like a fundamental strategy that applies to every retail investor as well.

We invite you to return to the 2013 SMA Managers of the Year home page to read about the finalists in the other three categories, and for additional and ongoing coverage of the winners, beginning on May 1, and the awards ceremony.